§ Statement of Purpose

The View from 1776 presents a framework to understand present-day issues from the viewpoint of the colonists who fought for American independence in 1776 and wrote the Constitution in 1787. Knowing and preserving those understandings, what might be called the unwritten constitution of our nation, is vital to preserving constitutional government. Without them, the bare words of the Constitution are just a Rorschach ink-blot that politicians, educators, and judges can interpret to mean anything they wish.

"We have no government armed with the power capable of contending with human passions, unbridled by morality and true religion. Our constitution is made only for a moral and religious people. It is wholly inadequate to the government of any other." John Adams, to the Officers of the First Brigade, Third Division, Massachusetts Militia, October 11, 1798.

§ American Traditions

§ People and Ideas

§ Decline of Western Civilization: a Snapshot

§ Books to Read

§ BUY MY BOOK

Monday, October 31, 2011

Justice

Schadenfreude is not an admirable emotion. But Jon Corzine deserves his misfortune.

As a Goldman Sachs partner he became immensely wealthy, as did his colleague Robert Rubin, who became Treasury Secretary under President Clinton. Mr. Corzine became a United State Senator, a role in which he did his best to further our national bankruptcy with liberal-progressive-socialist deficit spending. Later, as governor, he essentially bankrupted the state of New Jersey.

Saturday, October 29, 2011

A Prudent Federal Reserve System

President Nixon severed our last link with sound money in 1971, when he arbitrarily took the United States off the Bretton Woods version of a gold standard.

President Franklin Roosevelt began abandonment of prudence in 1933, when he arbitrarily reneged on contractual promises that Federal debts, including paper currency, had to be paid in gold at the holder’s option (see How FDR Destroyed the Dollar). Until 1933, the U. S. dollar was the among the strongest and most stable currencies in the world.

O’Driscoll has here put his finger on a major inconsistency in the Fed’s official line. Up until Bernanke’s recent reconsideration, the Fed has denied that its job was to worry about asset bubbles. Alan Greenspan declared that it was impossible for the Fed to recognize an asset bubble in real time (whereas his successor, Bernanke, had always been less sure about the subject).

Yet here’s the contradiction: In addition to not wanting to interfere with markets by popping asset bubbles, Greenspan also had his famous policy of the “Greenspan put.” In other words, Greenspan viewed it as the Fed’s job to intervene with loose money when asset prices crashed, but not to implement tight money when asset prices soared.

The so-called Greenspan put led the Fed to flood the financial system with excess fiat money after the 1987 stock market crash and after the dot.com boom-bust in the 1990s, which segued into the housing price bubble and the 2008 collapse of financial institutions.

As Professor Murphy notes, one of the Fed’s earliest policy actions after its 1913 creation was doubling the entire banking system’s lendable reserves in about six years during the 1920s, with the intention of keeping prices up to their World War I inflated levels. The theoretical justification was prevention of the sort of short-term recession that historically occurs when a nation shifts from wartime full-employment production to peacetime activities. The result, instead, was stock market speculation, speculatively booming real estate prices, and increases in consumer debt via installment financing, newly supported by banks flush with lendable funds courtesy of the Fed. The 1929 stock market crash and the Great Depressions were just around the corner.

Today, the Fed’s several injections of excess fiat money into the financial system are benefitting almost exclusively the financial institutions. The stock market is booming (unsoundly speculatively, I believe) and banks are coining money playing the spread between near zero cost of funds and relatively risk-free returns on Treasury securities.

Meanwhile, you and I (especially those of us living on a fixed income) are the ones really paying for this excrescence of Keynesian inflation by receiving much-reduced returns on our investments while struggling with rising costs of living.